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Tax News | 18 Mar 2018

Tax Revenue Indonesia: Another Tax Shortfall Expected in 2018

indonesia-investments.com, Jakarta – The government of Indonesia targets to collect IDR
1,618.1 trillion (approx. USD $120 billion) worth of tax revenue in the 2018 State Budget.
However, this would imply a 20 percent (y/y) increase from the estimated IDR 1,353.0 trillion
that Southeast Asia’s largest economy will collect in 2017. This seems a much too ambitious
growth pace, especially considering the average annual tax revenue growth pace in the
2014-2017 is (an estimated) 5.6 percent.

Indeed there is room for more-than-average tax revenue growth in 2018 because Indonesia’s
Tax Office can rely on a broader taxpayer base due to last year’s tax amnesty program
through which nearly USD $360 billion of assets were reported by taxpayers, while it added
IDR 107 trillion (approx. USD $8 billion) to the country’s 2016 tax revenue. However, this will
not be enough to trigger the required 20 percent growth in tax revenue to achieve the 2018
target.

There are also some risks that may occur in 2018. US President Donald Trump has planned
to make a more attractive tax regime in the USA, hence encouraging direct investment. As a
result, other countries may also decide to make their tax regimes more attractive. This could
make investors decide to invest in other countries aside from Indonesia.
Secondly, Indonesia is to enter the political years of 2018 (regional elections) and 2019 (legislative
and presidential elections). This can shift the focus from the tax reform agenda to
political matters.

Thirdly, one of the major reasons why Indonesia’s economic growth has been stagnant at
around 5 percent (y/y) in recent years is weak domestic consumption. Although there are
early signs of a rebound, a sudden upswing in household consumption is unlikely to occur in
the near future.

Earlier this week the Finance Minister said she expects to see a IDR 120 trillion tax shortfall
this year. However, despite this shortfall, there will not be an impact on the fiscal deficit because
government spending will also not reach the full target. Hence, Indonesia’s fiscal
deficit is expected to be around 2.6 – 2.7 percent of gross domestic product (GDP) for 2017.
Meanwhile, better-than-assumed crude oil prices so far in 2017 have helped the government’s
non-tax revenue to exceed its target.